Four factors that have dragged the rupee below 65 to a dollar

Rupee had plummeted by a whopping 54 paise to end at 64.81 to a dollar on Thursday.

ETMarkets.com|

Updated: Sep 22, 2017, 10.26 AM IST

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The US Federal Reserve’s decision to unwind its bond portfolio has rattled forex market sentiment, triggering panic dollar buying by companies and importers.

The rupee on Friday plunged below the 65 mark for the first time in over five-and-a-half months. The domestic currency was trading 25 paise down at 64.05 to the dollar around 10.10 am (IST).

The local currency had plummeted by a whopping 54 paise to end at 64.81 to a dollar on Thursday .

Going by the buzz in the forex market, here are the top factors weighing on the rupee:

Panic dollar buying The US Federal Reserve’s decision to unwind its bond portfolio has rattled forex market sentiment, triggering panic dollar buying by companies and importers. The Fed turned more hawkish than expected and made a formal announcement on Wednesday after its two-day rate-setting meeting that it would begin normalising its crisis-era stimulus programme from next month and stick with the plans for further rate hikes.

Brokerage ICICIdirect.com said the rupee posted the largest single-session decline on Thursday against the US dollar since May 18, after the US Federal Reserve hinted at raising policy rate once more before this year-end and said it would begin paring its massive bond portfolio from next month.

Speculation over stimulus Speculation about a major Rs 40,000-50,000 crore stimulus package from the government which may force it to relax the fiscal deficit target led to a spike in bond yields which in turn put pressure on the rupee. “Concerns over domestic fiscal deficit spiralling amid expectation of government stimulus weighed strongly on the rupee,” ICICIdirect said.

Slower growth expectation The OECD has trimmed India's growth forecast for this financial year to 6.7 per cent from a June estimate of 7.3 per cent, citing transitory impact of GST rollout and demonetisation. In contrast, China's economy gets a 0.2 per cent lift from its earlier assessment to 6.8 per cent for 2017.

FPI outflows Foreign portfolio investors have been on a selling spree on India’s equity market since August 1. They sold shares worth Rs 17213 crore between August 1 and September 21, according to data available with NSDL.